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Stockholm Stock market fall collapse to a news dangerous level


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Friday, 05 August 2011
The Stockholm Stock Exchange that has been poorly performing since the start of this year fell more yesterday in a way that has not been seen in recent times.

Stockholm, feeling the additional weight from external pressures plummeted by as much as 4.6 percent on Thursday. This made it the ninth consecutive day of falling stock market prices and since Monday about Skr 600 billion had gone up in smoke.

Analysts are now observing how such a situation is going to affect the economy and it is deemed that it is just a matter of time before the economy start feeling the pain. Swedish economy had been doing well and the hope is that the effect would be minimal.

The real driver of this concern lies on how things stake up in Southern Europe and the USA. On several occasions in recent days, the stock market was down driven by forces directly related to the weak economic statistics presented in the United States. Many analysts believe however that the figures were not as catastrophic as to justify such a strong reaction.

In southern Europe, the crisis is now centred around Italy and Spain, where interest rates for borrowing have risen sharply recently. During Thursday evening market struggle, there was a continued decline in stock markets in the U.S. where Nasdaq fell by 5.1 percent and the Dow by 4.3 percent.
 
“I have said that so long as it does not fall more than 20 percent from top to bottom, it can quickly turn upward again. But now we are dancing to the border. It is extremely difficult to assess the situation,” says financial analyst Peter Malmqvist.

The performance of the stock market this year in Sweden has left many analysts to puzzle. At this moment, the Stockholm market has lost 22.7 percent of its value this year alone despite many Swedish companies posting improved performances and giving positive pictures of the future.

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“The difference is that the engineering companies in principle have not yet shown any weaknesses but still fall anyway. Their results and also orders have in the quarterly reports been good and business management have expressed a positive view of the future. Forest companies, however, have been responsible for a number of disappointments in terms of earnings,” says Mattias Gredmark, a Market analyst.

What speaks against a real nosedive in the stock market is that companies are being undervalued. The so-called P/E ratios to compare companies’ profits and its stock price are generally low. A normal value in most cases would stand around 15-16 points but right now most companies on the Stockholm Stock Exchange are seeing their value placed at around or under 10 points.

Boliden for example has gone bad on the stock market this year. Its P/E ratio is accounted to be about seven points.  Autoliv is one of those companies that have lost most in the last months with its P/E standing at 8.5. Trelleborg, which has lost about 14.2 percent over the same period, is also on a P / E ratio of just below 10.

The companies that are qualified as defensive and tend to survive best in declining stock markets are telecom, pharmaceuticals, healthcare, and utilities. There are industries where consumers have difficulties saving in their products even in bad times.

Axfood has also done well in the downturn. Food tends to be good business at a time when food prices are also on the rise but people must also eat.
By Scancomark.se Team


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